Financial Planning

4 Questions Every Do-It-Yourself Investor Should Ask

A "no" answer to any of these questions means you’d probably be better off with a little professional help.

Many years ago, a potential client asked me, “Why do I need you to manage my money, when I can do it myself?” This question comes up frequently. Although I fully understand the numerous benefits of professional investment management, I used to struggle sometimes to provide a clear and concise response.

Today, when I meet with potential clients who have a “do-it-yourself mentality,” I ask them to answer the following four questions.

  • Do you have the time to manage your own investments?
  • Do you have an interest in managing your own investments?
  • Do you have the knowledge to manage your own investments?
  • Do you have the emotional wherewithal to manage your own investments?

If the potential client answers “no” to any of these four questions, then chances are he needs to work with a professional investment manager.

Do you have the TIME?

Managing money is what I do for a living, and I know how much time it takes to do so properly. The average investor rarely has the necessary time to effectively oversee the management of his investment portfolio. As with many things in life, you only get out of something the time that you put into it—and investment management is no exception.

Do you have an INTEREST?

In general, individuals tend to excel at those activities in which they have an interest. For do-it-yourself investors, a heightened level of personal interest often arises during secular bull markets. This artificial enthusiasm can quickly dissipate, however, when the market is going in the opposite direction—the exact time at which investor interest should be paramount.

Successful stewardship of an investment portfolio requires consistent monitoring, analysis and an unwavering passion—even as the excitement of a highflying stock market fades.

Do you have the KNOWLEDGE?

Attempting to manage an investment portfolio without formal training and education is akin to driving an automobile while being blindfolded: reckless.

When I was in high school, I had a friend who would change the oil in his car himself. He would always boast about how he was saving roughly $150 a year on oil changes, and he suggested that I should change my own oil as well. I did think about it, but that is about all I did. I certainly had the knowledge to change the oil in my car, so why didn’t I?

Early on, I realized the benefit of having an experienced mechanic. Not only would he change my oil, but he would also perform a comprehensive inspection while my vehicle was up on the lift—something I did not have the knowledge to do myself. This was invaluable to me, since he was able to point out minor issues before they became major problems (i.e., major expenses). My friend, on the other hand, learned the hard way. Although he had the knowledge to perform a basic oil change, that is about all he knew. Since he never employed the skillful eye of an experienced mechanic, little problems went unnoticed. Unfortunately for him, these little problems quickly grew into big problems (i.e., big expenses).

Do you have the EMOTIONAL WHEREWITHAL?

By nature, humans are emotional creatures, and this is especially evident when it comes to our investing habits. It is the rare individual investor who can remain calm and collected during periods of uncertainty and market volatility. Most individuals need the objective advice of an investment manager to guide them along the way. This is not to imply that individuals who work with an investment manager are in a constant state of euphoria, but it certainly helps knowing that they have someone in their corner keeping an eye on the important issues.

Some people may be capable of managing their own money, but not everyone has the time, interest, knowledge and emotional wherewithal to do so effectively.

About the Author

Chris Kelly, CPA, CFP

Financial Adviser & Portfolio Manager, Baltimore-Washington Financial Advisors

Chris Kelly is a Certified Public Accountant (CPA) and a Certified Financial Planner™ (CFP®). He holds a B.S. in finance from the University of Maryland and a master's in accounting from George Washington University. Kelly assists clients with the implementation of their personal financial plans, investment tax strategy and overall financial risk management. He takes great pride in maintaining a relationship based on trust, transparency and accountability with each of his clients.

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